Assura plc (LON: AGR), the leading primary care property investor and developer, has announced its interim results for the 6 months to the 30th September 2019.
Jonathan Murphy, Assura CEO, said:
“Assura has today delivered another strong performance, driven by new developments and carefully selected acquisitions. We have again made good progress with our key operational metrics, reporting 10% growth in net rental income, maintaining our focus on asset enhancement, selective strategic acquisitions and disposals. Our pipeline is the strongest it has been in 10 years, enhanced by the acquisition of GPI, which has created fresh opportunities for Assura.
“The UK’s primary care infrastructure continues to be in immediate need of modernisation which will ease the significant strain on NHS services. We remain well-positioned to be the NHS’s partner of choice, bringing a long-term approach to both investing and developing with an unrivalled team, capital strength and quality of service.”
A growing portfolio driving performance
· Net rental income up 10% to £50.6 million, rent roll growth of 2% to £104.4 million,
· 148 rent reviews settled in six months
· 2.04% of rental growth secured through settled rent reviews, 1.15% relating to open market reviews
· EPRA cost ratio at 12.8%, one of the lowest in the real estate sector
· EPRA EPS up 8% to 1.4p reflecting contribution from completed developments and acquisitions
· Dividend paid in period rise of 8% to 1.4p per share
· Profit before tax down 3% to £36.4 million, due to lower revaluation gains
· Portfolio value up 3% to £2,039 million driven by acquisitions and developments, EPRA NAV increased 0.2p to 53.5p
· Portfolio NIY now 4.72% and WAULT of 11.6 years demonstrates attractiveness of sector and Assura as a business
Strongest on-site and pipeline position in 10 years, bolstered by GPI acquisition
· £43 million of additions to completed property in the period; purchase of nine high quality properties and completion of two state-of-the-art developments
· 14 developments currently on-site and immediate pipeline of 15 further schemes
· Pipeline of properties on site or in legal hands at £206 million, up from £142 million at year end
· Immediate and extended development pipeline boosted by acquisition of pipeline and team of primary care developer GPI, announced in May
· 15 disposals for total proceeds of £18 million, above book value
Strong balance sheet ensures a platform for growth
· LTV of 36% provides good headroom to create value and build portfolio, weighted average interest rate of 3.16%
· Completed private placement of £107 million notes in August
· Undrawn committed facilities at £310 million
· A- (stable outlook) rating from Fitch providing us with a broadened access to debt capital markets and lenders
Committed to delivering a positive social impact in the communities we operate in
· Sustainability a core priority for all new developments
· Focus on supporting climate change targets, sustainable investor returns and customer running costs
· Signing up to be a member of the UK Green Building Council
· Awarded Bronze Award for compliance with EPRA Sustainability Best Practice Recommendations
Maintaining focus on being the NHS partner of choice
· Best-placed to support NHS given people, capital strength, quality of service, long-term relationships and market understanding
· Long-term approach to investing with collaboration across investment, development and portfolio teams
· Primary care remains an integral part of reducing pressure on the NHS’s services
· Assura’s buildings sit at the heart of communities across the UK, supporting 5.6 million patients: 8.5% of the UK population
· Strong pipeline of properties in legal hands at £206 million reinforces Assura’s position as partner of choice
Summary Results
| Financial performance | Sep 2019 | Sep 2018 | Change |
| EPRA earnings per share | 1.4p | 1.3p | 7.7% |
| Profit before tax | £36.4m | £37.4m | (2.7)% |
| Net rental income | £50.6m | £46.2m | 9.5% |
| Dividend per share | 1.4p | 1.3p | 7.7% |
| Property valuation and performance | Sep 2019 | March 2019 | Change |
| Investment property | £2,039m | £1,979m | 3.0% |
| Diluted EPRA NAV per share | 53.5p | 53.3p | – |
| Contracted annual rent roll | £104.4m | £102.7m | 1.7% |
| Financing | Sep 2019 | March 2019 | Change |
| Loan to value ratio | 36% | 34% | 2ppts |
| Undrawn committed facilities | £310m | £270m | 14.8% |
| Weighted average cost of debt | 3.16% | 3.24% | 8bps |
Alternative Performance Measures (“APMs”)
The highlights page and summary results table above include a number of financial measures to describe the financial performance of the Group, some of which are considered APMs as they are not defined under IFRS. Further details are provided in the CFO Review and the notes to the interim review.
CEO’s statement
The first half of this year has been another period of strong progress for Assura, driven by new developments and carefully selected acquisitions. Our on-site and pipeline status is the strongest it has been in 10 years, boosted by the acquisition of the GPI development pipeline.
We have seen further improvements in our key operational metrics, including impressive rental income growth following a close focus on asset enhancement and strategic acquisitions.
We have consolidated our leading position as an investor and developer of choice for primary care medical centres. We remain well placed as the largest developer in our sector to deliver new buildings that are crucial to the provision of high-quality health services in the communities they serve.
Enhanced portfolio
The value of our portfolio has increased by £60 million to £2.0 billion, reflecting mainly acquisitions which added £34 million and £21 million spend on developments. Overall, our investment property stands at 560 medical centres and we have a strong pipeline of opportunities for further growth.
The level of development opportunities has also continued to grow, and the acquisition of primary care developer GPI has further strengthened our team and pipeline. In addition to the two development completions in the first half, we have 14 schemes on site (total end cost £69 million), an immediate pipeline of 15 schemes (£72 million) which we hope to commence within 12 months and an extended pipeline, where we are the appointed development partner but the scheme is not yet approved, of 32 schemes (£168 million).
The growth of the development pipeline over the last two years has accelerated as more schemes are clearing the NHS approval process.
The market for primary care medical centres remains competitive, but our acquisition pipeline remains strong at £65 million.
The renewed focus on improving our existing assets has seen us achieve increased levels of lease regears and new tenants in the period. We are concentrating on growing our contracted rental income, and we have developed a good pipeline of lease events that are in legal hands.
Our current LTV is 36%, which we expect to increase in the short term as we fund further growth of the portfolio through both acquisitions and developments. We have a good level of headroom on our banking facilities to fund further growth.
Financial highlights
The growth in our portfolio has continued to be reflected in our financial results. Net rental income increased 10% to £50.6 million, while EPRA earnings increased 4% to £32.9 million, or 1.4 pence per share. IFRS profit before tax was £36.4 million and diluted EPRA net asset value grew to 53.5 pence per share at the period end.
As previously stated, we intend to announce proposed dividends annually at the time of our full year results rather than with the interim results as is currently the case. The quarterly dividend will be increased by 1.8% to 0.697 pence per share with effect from the January 2020 and any further changes will be announced alongside the full year results in May 2020.
Strong market opportunity
Assura maintains an open dialogue with the key stakeholders within the NHS and Government. We continue to demonstrate our excellent track record and ability to deliver state of the art primary care premises within the heart of the community. We remain at the forefront to deliver value for money for the NHS and for the taxpayer as a third party developer (“3PD”). The ability to deliver these developments presents limited development risk for Assura with pre-let arrangements as well as the opportunity for future rental growth.
The NHS is planning the allocation of its additional funding with a renewed focus on illness prevention. This focus leans to investment in primary care, partnership working with community healthcare services and social prescribing. Further detail for NHS capital investment will come next year, but with private finance initiatives (“PFI”) ruled out by the Chancellor, good value public private partnership options for investment in community healthcare buildings, such as third party development, will continue to play an important role.
We have continued to both source and complete acquisition prospects during the period utilising our proprietary database. Our extended development pipeline is the strongest it has been for the past 10 years and has been further improved by the addition of the GPI pipeline. Assura’s market share remains modest and there are many opportunities for further growth in a highly fragmented and specialist market.
Board changes
David Richardson retired as Senior Independent Director at the conclusion of the AGM on 2 July, having served for seven years. I would like to thank him personally and on behalf of the Board for his valued contribution over this growth period.
Jonathan Davies, who has been a Non-Executive Director since June 2018, has taken over as Senior Independent Director. We continued to strengthen the Board with the appointment of Louise Fowler as a Non-Executive Director in June. Both have brought a wealth of business and financial experience as well as fresh perspectives to the Board and I look forward to working with them as we continue to develop our business and strategy to add value for our shareholders.
Outlook
Assura remains well-positioned to become the NHS’s partner of choice in primary care property in a highly fragmented market characterised by significant under-investment in infrastructure. Our portfolio of 560 medical centres compares with a total UK market of approximately 9,000, highlighting Assura’s strong prospects for further growth.
The strength of our balance sheet has seen us receive continued support from our existing lenders, raising £107 million in the period. We retain headroom for further investment with an LTV of 36%, average weighted interest rate of 3.16% and available facilities of £310 million.
We also have a strong pipeline of £65 million of targeted acquisitions and £72 million of development opportunities currently in legal hands.
The open market rent review mechanism in our sector provides income growth whilst recent land and construction cost inflation provides the potential for future rental growth. We have seen trends in cost inflation flowing through to open market rent reviews.
Looking ahead, Assura will continue its work to provide outstanding spaces for health services in our communities whilst also providing stable long-term returns, reflected in the proposed increase in quarterly dividend from January 2020.
Jonathan Murphy
CEO
